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. Last Updated: 07/27/2016

Andersen to See Obstruction of Justice Charge

WASHINGTON -- Federal prosecutors have told Arthur Andersen LLP that they intend to charge the firm with obstruction of justice for failing to prevent document shredding after company officials learned Enron Corp.'s accounting procedures were the subject of lawsuits and a federal inquiry, legal sources said Monday.

Prosecutors have set a Thursday deadline for Andersen to agree to enter a guilty plea, the sources said, although Justice Department officials are continuing to meet this week with Andersen lawyers arguing against criminal charges. It was not clear how quickly Justice would act if Andersen failed to agree to a guilty plea.

Criminal division chief Michael Chertoff, who is overseeing the case, is slated to preside at a meeting Thursday to determine the company's fate.

Andersen may be pressed into a quick settlement because there are so many other legal problems that pose immediate dangers to the company's survival, several lawyers involved said. The company is facing fines and disciplinary action from the Securities and Exchange Commission and is the target of lawsuits by Enron shareholders, creditors and employees.

On Monday, an internal review board headed by former Federal Reserve chairman Paul Volcker said Andersen should be broken into multiple partnerships to try to reform its practices.

"We don't know if the government is ready to bring the case, but we know Andersen is desperate not to have a case. The government is really in the driver's seat,'' said a Capitol Hill lawyer who has been involved in the Andersen investigation.

If the company is charged in the immediate future, it might be largely without direct grand jury testimony, a reflection of how quickly events are unfolding.

Andersen lawyers took the unusual step of approaching the Justice Department about their legal exposure late last month instead of waiting for prosecutors to come to them. They hoped to work out simultaneous settlements with all the parties suing them, and sought assurance from the Justice Department that they were not facing criminal charges relating to the destruction last fall of Enron-related documents.

Andersen presented the findings of their own investigation of the shredding, lawyers involved in the case said, which concluded that most of the culpability rested with auditors in the Houston office and did not implicate top officials of the accounting firm.

The firm was surprised to learn that the Justice Department held a different view. The government argued that Andersen had failed to put mechanisms in place that would have explicitly called for employees to retain documents that might be sought in legal proceedings.

"The government doesn't have to prove intent because Andersen is so desperate,'' said a congressional lawyer.

Government lawyers have been unsympathetic to the firm's argument that a felony count would jeopardize the company's survival, imperiling the recovery chances of all those who are suing Andersen.

Now, desperate for more time, Andersen lawyers have even told the government they want to bring their employees before a grand jury to explain the shredding, according to one Andersen source not involved in the negotiations.

The company is expected to meet with prosecutors at least once more before Thursday to present more facts about the document destruction and to make the argument that there is no precedent for accounting partnerships being forced into a felony plea.

Discussions between Andersen negotiators and the Justice Department's Chertoff last week included a vigorous exchange about the validity of bringing criminal counts of obstruction of justice against Andersen and various partners and associates involved with destruction of documents.

Much of the exchange involved the Justice Department's guidelines, "Federal Prosecution of Corporations,'' which outline when it is appropriate to bring a count against a company or partnership instead of an individual.

"Corporations should not be treated leniently because of their artificial nature, nor should they be subject to harsher treatment,'' advise the guidelines, published in June 1999. "Indicting corporations for wrongdoing enables the government to address and be a force for positive change of corporate culture, alter corporate behavior and prevent, discover and punish white collar crime.''

To counter the Justice Department's tough line with Andersen, attorneys for the accounting firm have pointed out that they were the ones who first brought evidence of wrongdoing to the attention of prosecutors.

Justice Department guidelines call for prosecutors to take into account a company's "timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation'' of employees.

Andersen officials fear that an indictment of the firm could be a lethal blow that would so damage Andersen's business that it then would be impossible to create a shareholders' fund in the hundreds of millions of dollars. One source familiar with the company's strategy said Monday, however, that the firm believes it could survive a criminal charge if the SEC allows it to continue to sign audits.